A House, A House, My Income for A House

During the emotional turmoil of a divorce it is perfectly natural to focus on your short term needs. But as hard as it may be to think ahead to the long term, the decisions you and your spouse make on how you share your money now will have implications that last you for the rest of your life.

In the Bath Collaborative POD meeting in May 2010, Miles Hendy of Fraser Heath Financial Management and David Freke of Moore Stephens talked through the assembled group of collaboratively trained lawyers and family consultants how a Financial Neutral can show the likely long term consequences of adopting different financial strategies on divorce.

They took an example of a 50 year old female faced with two different options:

Keep much of the wealth after the divorce tied up in the property, choosing to offset the value of her husband’s larger pension in favour of more money for the home and retaining a modest emergency fund.

Opt for a smaller home, accept a Pension Sharing Order on the husband’s pension and to retain a larger proportion of savings.

Assumptions were built in about how much money she would like to live off at various stages and the higher costs of staying in a bigger property. They were able to show two different outcomes.

The route of retaining wealth primarily in the home saw an income shortfall by age 66. At this point the property will need to have been sold and downsized.

Meanwhile the other route projected a comfortable income throughout retirement.

This process of forecasting cash flow and future assets is invaluable in a collaborative divorce. The financial neutral can help the parting couple reach a fully informed decision and reach a solution that sees the long term future of both parties protected. In more traditional divorces, it can act as a starting point for the future and give confidence that there is a clear financial plan in place.